Obama's hero, President Lincoln, once said, "Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built."
In his first two months as president, Obama has announced more federal government spending than was spent from the beginning of the country until now. A day after signing his first $787 billion stimulus bill bailout, Obama announced his next bailout, $75 billion for an estimated nine million homeowners. Under the Homeowner Affordability and Stability Plan, which begins March 4, 2009, eligible homeowners can get their home loan interest rates lowered until their mortgage payments are no more than 31 percent of their income, and that new rate will then be good for five years. Additionally, after five years of making reduced payments, those homeowners will then receive up to an additional $5000 reduction in their payments. So how does the average American get in on this Democrat-legalized scam? No longer even making a pretense of helping the poor, Obama's bailouts are going to corporations and the upper middle class who can afford to buy homes.
Obama said the bailout would apply to "families who have played by the rules and acted responsibly." What exactly does this mean? This contradicts what the liberal San Francisco Chronicle admitted about the foreclosure bailout in an editorial, saying "some people who don't 'deserve' to be helped" will be helped, and the "Housing plan must help the undeserving." But if we’re to honor what Obama said, then any homeowner who qualifies in this time of economic downturn should also utilize the bailout.
According to a FAQ posted on the White House website, it is not necessary to be behind on mortgage payments in order to be eligible for the refi bailout, qualifying factors also include "a significant increase in expenses" or "an interest rate that will reset to an unaffordable level." What the former means is that a family with a home mortgage could purchase a brand-new large, luxurious SUV, "significantly increasing" their expenses – and effectively get the brand-new SUV for free. For example, if a family bought a $200,000 home in 2005 at a 15% interest rate, and purchasing a new SUV added a new monthly payment that combined with their mortgage payment to equal significantly higher payments than 31% of their income, they could get their mortgage interest rate lowered to 2%, or whatever it took to get below the 31% threshold. If lowered to 2%, they would save $107,765.40 in interest payments over the next five years, enough to buy a fully loaded 2009 Cadillac Escalade.
Families that financed their homes with ARM loans, which begin with a low-interest rate that balloons in a few years into a high interest rate, are also entitled to a lower rate under Obama's plan. Responsible homeowners who chose a fixed-rate mortgage from the beginning get no such relief – unless they go buy a pricey new SUV or otherwise "significantly increase" their expenses.
Homeowners who owe more on their house than it's worth (up to 105%) and homeowners who have taken out a second mortgage on top of that are generally eligible for the bailout. The program is targeted at mortgagors whose loans are currently held with Fannie Mae or Freddie Mac, but many lenders are open to providing this screaming good deal if you call and just ask.
Obama asserted that the bailout will not apply to speculative investors, but that’s not accurate, since homeowners who bought multiple duplexes which they do not live in are eligible for a bailout of all the units as long as they label one unit their residence.
The homeowners who will be helped out by the bill aren't really poor people – poor people generally live in apartments, they do not own houses and condos. The bailout applies to home mortgages worth up to $417,000 and up to $625,500 in "high-risk areas." (I live in "high-risk" Arizona, I could have bought 6 times as much house as I did and be entitled now to the same mortgage payments – all I can do now to benefit from it is buy a pricey SUV or "significantly increase" my living expenses like adding on a new wing to my home) It will help out homeowners who took on too much debt, or who "cashed out" thousands more than their original loan, putting them "underwater." What Obama won't tell you is that the vast majority of subprime loans went for refinancing, not initial home purchases. A lot of folks got too greedy and refinanced with an ARM loan or some other kind of loan too good to be true for their income and spending habits.
The fundamental problem with the foreclosure bailout is it encourages and perpetuates the type of behavior that contributed to the recession in the first place – enabling people to buy homes they cannot afford. Someone who bought a $400,000 home, refinanced it with a subprime loan in order to get cash back, putting them underwater, then bought a luxurious new SUV, should not be entitled to a free $100,000 bailout from the rest of us. What is going to happen to their $400,000 house in five years when the low interest rate provided by the bailout expires? South Carolina's Republican Governor Mark Sanford says the bill rewards irresponsible behavior, since "95% of folks are playing by the rules and struggling, but are still paying their mortgages." Minnesota's Republican Governor Tim Pawlenty questioned the government's involvement at all in private mortgage contracts.
Obama’s solution to give more money to those who spent beyond their means is irresponsible. It was government that helped trigger the foreclosure crisis by creating the government-run entities Fannie Mae and Freddie Mac and having them provide loans to risky homebuyers. They were at the heart of the subprime loan crisis, behind half of the subprime loans that ended up in default.
Since government artificially created the glut of risky loans, it does not make any sense to have government continue to prop them up – they didn't work and it's better to write them off as a failed experiment. Both homeowners and lenders are at fault for the foreclosure crisis, and neither should be rewarded.
Tom Jenney of Americans for Prosperity describes government stimulus plans as the economic equivalent of crystal meth. Clint Bolick of the Goldwater Institute describes Obamanomics this way: "I buy a yacht that I can't afford. I default on the loan. The bill is sent to my children and future grandchildren (and to yours). The best part: I get to keep sailing."
Obama isn't doing anyone any good by glossing over the fact that certain homeowners bought homes they could not afford, and lenders provided mortgages to people they knew were highly risky. The notion that Americans are entitled to own their own homes sounds good in theory, but it is not a constitutional right. Americans enjoy some of the highest living standards in the world. Running water, electricity, air conditioning, heat, and multiple bedrooms come standard in the crummiest of American apartments. Relative to other nations, Americans live high on the hog in an average apartment.
Abraham Lincoln could only have dreamed of the modern conveniences we enjoy today. Obama may claim Lincoln is his role model, but Lincoln was a rugged individual who would have never praised dependency on the government. Lincoln once said, "Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built." Some are warning today that the bailouts could lead to massive protests and violence. They already have provoked phenomenal nationwide teaparty protests across the nation. Let's hope Lincoln isn't right.